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Insurance Collection Executives

Optimizing Accounts Receivable Management

Date: October 23, 2007

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Discussion Agenda

Introduction Strategy Tactics Questions

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Receivables Management is a Tough Job ! AR Managers: are like referees manage most company revenue and 99% isn’t good enough are a service touch point for all customers must promote revenue but control risk are accountable for AR results without controlling all the

determinants (upstream processes, economy, etc.) practice as much art as science must do it all for one to two tenths of a percent of revenue

You’ve all been successful, but improvement expected

How will you do it?

Introduction

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Today’s Objectives

Challenge your current thinking and practice. How are you going to improve?

Convince you to consider strategy (and tactics) proven effective in difficult collection environments (independent, regional, and national insurance agencies, hospitals, distributors, construction trade, etc.)

Share experience in improving collections for over 100 companies in a wide range of industries

Ask yourself: would these tactics work at my company?

Introduction

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Objective of Collections Convert premium to cash as quickly and efficiently as possible Ensure an uninterrupted flow of services to your customers

Benefits of Effective Collections Increased investment income from enhanced cash flow Higher underwriting capacity from lower non-admitted assets Reduced revenue leakage/concessions on disputed retro adjusted,

loss sensitive, etc. premium Increased subrogation and reinsurance recovery Lower cost of collection function Lower bad debt expense

Introduction

Collections can deliver huge cash and profit improvements

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Corporate strategy for receivables Financing customers as competitive advantage Maximize cash flow Minimize bad debt Least cost to manage Undefined

A Shared Corporate Vision for Receivables Payment expected on due date Disputes are customer satisfaction issues first, AR issues second Vision shared by C level management, Sales, et al; not just Credit

as a “voice in the wilderness.”

Strategy – the Three Levels

Strategic alignment required to optimize the huge investment in AR

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Portfolio Strategy Different approach for different customer categories, just like the

Marketing segmentation approach• Agents and Brokers vs. Direct• Commercial vs. Personal• Workers’ Compensation• Major account vs. small account• Line of business – retro adj. vs. “straight” premium• Government vs. private sector• Credit risk rating

Allocate staff resources to each segment - # and skill set Align metrics where prudent

Strategy – the Three Levels

One size does not fit all

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% of # ofLevel A/R Accts

A 70% 559 (>$50K)

B 19% 705 ($20-50K)

C 11% 2278

(<$20K)

Proactive Calls

Frequent Calling

Periodic Meetings Escalate

Collection Calls Proactive Calls on Large Invoices Escalate

Invoice Date Due Date Due Date +30 Due Date +60

Collection letters series

Collection Calls

Escalate

Credit Hold

COLLECTION INTENSITY MATRIX

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Key account (preferred broker/agency) approach Premium customer financial service Maintain account in good standing to ensure uninterrupted flow of

services Proactive collection reminders – drive cash flow Skipped invoice, dispute resolution Account maintenance (“clutter”) Face to face meetings Relationship hierarchy – escalation protocol Payer profile

Tactics

10-20% of customers who generate 80% of revenue deserve greater proportion of time and best staff

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Key Account Approach

Key accounts can also create disproportionate problems if not managed properly

National Account Impact on Business

16%18%

34%

51%

62%

70%

90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% ofRevenue

% ofInvoices

% of AR >60days past

due

% of AR >90days past

due

% of opentransactions

% ofInvoices withAttachments

% of openDeductions

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Lower value accounts Well defined collection timeline (treatment) High volume contact Sooner rather than later Automatic Automated Lower frequency billing Incentives for credit/procurement card payment, direct debit Policy mandates for accelerated, secure payment based on volume

or delinquency

Tactics

High volume, fast, standard approach required

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Metrics Actual DPO vs. Best Possible DPO Past due amount (1-30 or 11-30) and %, especially > 90 Credit risk rating of asset “Clutter” or dilution Actual cash collected vs. target

Incentives – can be tricky but are powerful Based on actual vs. target cash collected Quarterly measurement and payout Meaningful amount (15% of base)

Tactics

Accountability and incentives for the right metrics will enable staff to drive results

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Dispute Management Cross functional, shared responsibility Cleary defined workflow, roles & responsibilities Standard resolution timeframes Categorize by type – price, retro adj., etc. Route to person “best positioned to resolve” Track through to clearing – internal dunning Automate workflow, document images, reporting Metrics:

• #, age, value by responsible party and in total• throughput• Ultimate outcome – collected or credited• By type = causal analysis

Tactics

Dispute management is critical to AR and customer satisfaction success

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Dispute Management – Cycle Times

Illustration of Dispute Resolution Improvement

240

200

160

0

40

80

120

238

216

100

86

January March June September

Days from Inv. Date to Clearing

Past due >90 decreased 48%, Customer Sat. Improved

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Continuous Improvement of Billing Accuracy Measure it – Billing Quality Index Utilize dispute data to direct efforts Redesign upstream processes – Lean, Six Sigma (cross functional) Ensure invoice format is helping, not hurting

Redesign reconciliation processes: retro adj., loss sensitive, preliminary vs. final invoice, premium trust account, etc. Probability of recovery prioritization High speed procedures with decision points Automation tools – faster, less work

Tactics

Billing accuracy is the Holy Grail of AR management

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Technology Automate repetitive functions and data collection in:

• Cash application – auto-cash and “hit rate” improvement• Collection prioritization, workflows, contact, follow up

Predictive and auto dialing

• Credit vetting & scoring

Document storage, retrieval, and routing Reporting Reconciliation tools Essential in direct billing environments and Personal lines Direct debit – one client collects 20% of revenue this way

Tactics

Technology is absolutely required to achieve peak effectiveness and efficiency

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New or different actions required to get better Strategy

Define and align Everyone on board Portfolio – segment, targeted approach, align resources, execute

Tactics Metrics and incentives Dispute resolution – workflow, imaging, automation Billing accuracy Reconciliation productivity Technology

Conclusions

Good luck !!

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Your questions now

I’ll be at entire conference to answer your questions later

Questions

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